Will the Resilient Consumer Continue to Prevail?

Congress and the Federal Reserve were able to successfully support “state and local governments, small and medium-sized businesses, and large employers” during a massive demand shock induced by COVID shut downs.* These efforts were made possible through the passing of the CARES Act, which extended unemployment benefits and provided businesses and households with sufficient cash to withstand the shut downs. Additionally, the Federal Reserve restored market functioning by lowering the Federal Funds rate to its lower bound, purchasing massive amounts of bonds, and by initiating a series of lending facilities with the help of congress, thus allowing the flow of credit to flow into the real economy during times of stress. Consequently, the economy, along with financial markets, roared back from its lows in March. At the peak of the COVID shock, the unemployment rate experienced a massive spike in April, shooting up to above 14% as approximately 22 million Americans lost their jobs (Figure 1).** Only to come back down to current levels of about 7% as government support allowed businesses to have sufficient access to credit and government funds, which allowed them to rehire employees.

*Powell, J. H. (2020, November 20). Letter from Chair Powell to Secretary Mnuchin regarding emergency lending facilities [Letter to Steven Mnuchin]. Washington, D.C.

**The April jobs report did not account for temporarily unemployed workers or “furloughed” employees. If these people were counted as unemployed in the jobs report the unemployment rate would have…